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TSB to refund about 2800 customers an average of $170 each after overcharging loan break fees between 2008 and 2016

TSB to refund about 2800 customers an average of $170 each after overcharging loan break fees between 2008 and 2016

TSB Bank is to repay about 2800 customers it "inadvertently" overcharged an average of $170 for early termination of their fixed-term lending agreements, the Commerce Commission says.

The consumer watchdog says TSB identified three errors in how it calculated the fee it charges for early loan termination, known as a break fee. These mistakes meant some customers were overcharged and some were undercharged. TSB reported the errors to the Commerce Commission in April 2016 as a potential breach of the Credit Contracts and Consumer Finance Act (CCCFA).

TSB is recalculating the break fees and refunding customers affected between 2008 and February 2016, the Commerce Commission says, adding TSB won't be claiming money from customers it undercharged.  

“TSB is paying refunds to affected customers and is writing to customers who are entitled to a refund. It is also using its website to alert customers that it had inadvertently overcharged break fees on some affected loans," Commissioner Anna Rawlings says.

TSB is refunding about 2800 customers who were overcharged between 1 October 2008 and 14 February 2016. The average refund is $170, suggesting this is costing the bank about $476,000 all up. That's equivalent to about 1% of TSB's $46.34 million March year profit.

Rawlings says she is pleased TSB dobbed itself in to the Commission.

“TSB has fully co-operated with our investigation and it says the break fee calculation errors were unintentional. It will certify to the Commission that the necessary customer refunds have been made,” says Rawlings.     

The Commerce Commission says TSB will contact customers entitled to a refund.

"Any customer who thinks they are entitled to a refund and who has not heard from TSB by the end of January 2018, should contact TSB. Customers who were charged a break fee of less than $400 between 1 October 2008 and 28 February 2013 will need to contact TSB to see if they are entitled to a refund."

'It is deeply disappointing'

TSB itself says it signed a settlement agreement with the Commerce Commission on December 11. The bank says it "self-reported" the error in April 2016 with a full report on actions and investigations it had done and has worked closely with the Commerce Commission since.

TSB says it sent letters and refunds to affected customers on Wednesday with Commerce Commission permission.

"TSB is not disclosing the total amount because some refunds will go unclaimed and be donated to the National Building Financial Capability Charitable Trust. So we won’t have the final figures of refunds and donation until after 15 months," a spokesperson for the bank says.

TSB CEO Kevin Murphy says the bank regularly assesses its products and services that feature a calculation requirement.

“For this reason it is deeply disappointing to find a miscalculation that resulted in some customers being overcharged,” Murphy who is leaving TSB in January says.

TSB says it corrected the error in February 2016.

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Perhaps bank customers should view the fixed mortgage ‘break fees’ more as ‘lock-in’ penalties on the discounted fixed rates.
The reasons/risks for fixing for 3 years or more seem to have evaporated into the forces of deflation and the inability to raise interest rates.

It's only going to apply if the swap rate moves'one way. Basically the bank charges back the loss it would make exiting that contract early.

How did TSB Bank stuff up such a simple calculation? At some point someone must have thought "this isn't right..."